Provisional tax reforms don’t go far enough

The Government’s provisional tax regime fails to go far enough in reducing the burden of provisional tax, and provides a potential tax avoidance opportunity for large businesses, say Labour’s Small Business spokesperson Jacinda Ardern and Revenue spokesman Stuart Nash.

“In 2015, Labour released a policy that allowed businesses to treat their tax more like an employee and undertake a PAYE-type arrangement at a rate that they set. We also proposed dumping the penalty regime,” says Jacinda Ardern.

“On first blush it looks like the Government has done the same – the reality is that the Government’s regime could require SMEs to lodge a two-monthly tax return from 1 April 2018.

Labour’s Revenue spokesman Stuart Nash said the proposed changes to provisional tax did not simplify the process at all, but rather requires companies to pay at a rate of last-year-plus 5%, and so in effect ‘overpay’ their tax. If they do underpay, then they will still be required to pay Use-of-Money-Interest (UOMI).

“What is worse, is these rules provide an opportunity for large companies with expert lawyers to avoid paying tax for two years by setting up a complicated web of trusts and companies. The Government recognises this by stating they will need to implement an anti-avoidance response but have given no details.

“It is rather odd to announce a new tax scheme that the Minister acknowledges can be rorted, but even worse when he does not provide a solution to such an issue.

“We would encourage the Government to opt for the plan we announced last year – it’s simple, effective, and has been welcomed by those who will use the regime,” said Stuart Nash.